Mexico's economic vitality will depend on that of its next leader
A wind of change is blowing on Mexico. Three months before much-hyped elections, presidential hopefuls promise 'deep reforms', 'true difference', and indeed, 'real change'. Reports on manufacturing and services look good. Tourism has had a record year - and becomes increasingly diverse.
And yet. Polls suggest many voters have lost faith in their politicians, who they see as tied up to old, corrupt parties. Crime is still filling front pages with macabre stories and alarming figures. Investors continue to see less shine in Mexico than in its bigger Latin American rival, Brazil. The country is running out of oil. So what to think about Mexico's future?
A lot of analysts dismiss Mexico as a boring investment destination. In their view, there is no impressive economic take-off to expect there - not on the scale as, say, Brazil or Colombia. But part of the reason for these low expectations is due to a base effect: the country is already pretty high up in terms of economic development. Its population is majority middle class, and domestic consumption is up. It's the United States third largest trading partner. The country is very well integrated to global supply chains, thanks to its high degree of industrialisation and specialisation.
Sound macroeconomic policies make all this possible. Mexico is an open economy, advocate of free trade. Thanks to Nafta and other agreements, some of its industries, such as car making, have become export champions. Foreign investment has financed good infrastructure and transport. Its currency is floating freely, along with trade flows. Public and foreign debt are also well managed, as proven by a very successful bond issue last week. All this contrasts starkly with policies put in place in other Latin American economies, notably Brazil and Argentina, where protectionism, currency intervention and high public debt are costly burdens on the economy. They've recently tried to renegotiate free trade agreements with Mexico in order to protect their uncompetitive industries.
What's more, the macroeconomic climate is turning in Mexico's favour. China is becoming an ever more expensive place to manufacture stuff: wages are rising, and with prices of oil and insurance on the up shipping the goods is no longer a bargain. At a time when companies are looking for affordable, efficient options to serve the American continent, the proximity, decent wages, good logistics and high degree of specialisation of the Mexican industrial fabric will appeal many. Mexico is also in a better position to benefit from the global recovery. It faced the continent's deepest recession in 2008, and slowish growth thereafter, because of its dependence on the depressed US market. Meanwhile Brazil grew dramatically faster, thanks to strong Chinese appetite for its commodity riches. But now that its powerful neihbour is bouncing back, and China slowing down. Mexico seems to have its stakes on the right horse.
But the country has big problems, too. Its telecom and TV industries are dominated by near monopolies, America Mobil and Televisa. The OECD says that sky-high prices for telephone and Internet costs Mexicans tens of billion dollars every year. Slow and patchy Internet could cost companies even more. Corruption, impunity, red tape and monopoly structures in other industries act as further drags on economic competitiveness. And most important of all, oil production - on which Mexico has heavily relied to kick-start economic development - is fast decreasing. The necessary investment to prospect for new wells, and update a creaking infrastructure, is not being made.
These problems have solutions. Breaking down state monopolies, or instilling more competition in protected industries, would do good to producers and consumers alike. This means tackling powerful lobbies and interests, in a country were corruption is rife. But that it still possible, as evidenced by recent progress in the media industry. Energy reforms, and constitutional changes, should also open the door to much-needed private investment in the oil sector. A good start would be to list a stake of Pemex, the state-owned company, on the stock exchange - like Brazil did with Petrobras in 2010. Simpler tax and labour laws would also help. Complicated legislation makes the job market a bottleneck in many sectors.
Which takes us to the big question. Will Mexico's next leader find the force to introduce the sweeping reforms Mexico sorely needs? The two front-runners to this summer's presidential elections are Enrique Pena Nieto, the 45 year-old, clean-cut governor of Mexico State; and Josefine Vasquez Mota, the first female candidate for the job and a former education minister. But how much room for manoeuvre these will allow to the candidates remains to be seen.Despite their fresh faces and smooth talking, both belong to the same old parties Mexico's democracy has ever known. Their reputation has been severely tarnished by corruption scandals and years of political immobility.
Mr Nieto's Institutional Revolutionary Party (PRI) is the 'old guard'. It has dominated Mexico for 70 years, and not done much good to the country. Despite televised promises for 'a government that delivers', Mr Nieto is still very vague about his program. Many wonder whether anyone from the PRI can genuinely deliver anything 'revolutionary' anymore. Is the good-looking, sharp-tongued candidate about to bring back dinosaurs in the presidential palace?
And yet, after a decade in power, Ms Vasquez's National Action Party (PAN) is probably even more worn out. It has failed to deliver any meaningful reforms. Its struggle against organised crime, which has made 50,000 dead in 5 years, has made it largely unpopular. The government itself is seen as corrupt. So it's clear why Ms Vasquez would want to be seen as 'different'. But so far, apart on education reforms, she hasn't really explained what being different really entails. Will she be strong enough to distance herself from her embattled party - and change the system?
In theory such scepticism for mainstream candidates would benefit the outsider. But Mr Obrador, the thrid man in the race, is himself a bit of a 'tired has-been' - as his most cynical critics nickname him. He still has to prove he has departed from the radical populism of his last campaign. His calls for 'honesty, justice, and love, lots of love', fail to convince. He's trailing so far behind in the polls that few believe he is a credible alternative.
So far Mr Nieto looks set to win. As the campaign started on March 30th, he was leading the polls by a good 15%. Which prompted him to announce a more specific agenda of reforms, with labour and energy bills topping the list, and promise to lead the PRI through a new revolution. Let's hope the telegenic governor keeps his words. With so much potential still to be tapped, Mexico deserves tastier prospects than a reheat of yesterday's rotten tacos.